County credit rating remains strong, but analysts cast concerns over use of surplus

Monday

Feb 25, 2013 at 12:01 AMFeb 25, 2013 at 5:00 AM

By Danielle CamilliStaff writer

As Burlington County officials prepare to go to market with multimillion-dollar bonds, Moody’s Investor Services and Standard & Poor’s released reports Friday maintaining the county’s strong bond rating but revising its outlook from stable to negative.

The Burlington County Bridge Commission, which is the county’s improvement and economic development authority, is set to float a $55 million bond for major capital improvements to its spans, including the Burlington-Bristol and Tacony-Palmyra bridges. The county, which also guarantees borrowing by the commission, is ready to go out with its own $61 million bond refinancing plan.

On Thursday, the county will go to auction its bond, which will refinance old debt incurred by the county and several of its municipalities and their entities. Officials are expecting to leverage the county’s strong rating and lower interest rates to realize more than $5.6 million in savings. The county government alone is expected to save about $3 million through financing about $29 million.

Last week, ahead of the sale, Moody’s and S&P released their reports on the county’s finances. They both maintained the county’s Aa rating, the second-highest mark for government bonds. Moody’s cited the county’s tax base with higher-than-average wealth levels and its manageable debt position.

But Moody’s also assigned a negative outlook, finding the county’s “narrowed financial reserves will be challenged to grow to adequate levels over the near-medium term.” Moody’s also cited the significant guaranteed debt as a challenge, despite Burlington County remaining well within its $1 billion borrowing capacity.

While S&P also assigned a negative outlook, it found the county surplus to be adequate.

Current fund reserves have steadily declined over the last five years to $7.3 million or 3.2 percent of revenues in fiscal 2011, down from a high of $23.2 million or 9.3 percent of revenue in fiscal 2007, according to Moody’s report.

But “management has undertaken efforts to cut recurring expenditures and create cost efficiencies, including department consolidations and substantial staff reductions,” the report reads.

Moreover, Moody’s found the county had several strengths to build on, including a large tax base with the institutional presence of Joint Base McGuire-Dix-Lakehurst, higher than average socioeconomic wealth indicators, and recurring expenditure reductions with new revenues.

Increasing reserves, finding additional revenue and continuing expenditure management could improve the county’s already-strong rating and its outlook, the report stated. It cautioned that further declines in reserves, or surplus; failure to manage expenditures; and significant increases in debt could hurt the rating in the future.

Burlington County Chief Financial Officer Marc Krassan said Friday that the county already knows the 2013 budget will include a higher surplus.

“The fund balance will grow by $3 million and be greater than $10 million,” he said.

Krassan said S&P is poised to put the county outlook back at stable once the audit confirms the increase later this year.

Krassan and county Administrator Paul Drayton said the good news from the reports is that the county’s credit rating remains unchanged and strong.

Drayton said the county is “confident in its financial management practices” and will not make any major changes as a result of the outlook report. He said the county has maintained the credit rating while cutting $25 million in its budget over the last several years.

The credit agencies’ concerns are not unexpected or unusual in New Jersey, where government entities have been forced to use surpluses in recent years to fill budget gaps caused by decreasing revenues and shrinking tax bases.

Furthermore, since Superstorm Sandy in October, many municipal governments have had their outlooks changed to negative or been put on credit watch.

Two counties, Union and Middlesex, have seen their credit ratings downgraded, Drayton said.

“We feel very fortunate to maintain our credit rating, especially with New Jersey being under a microscope that has intensified since Sandy,” Krassan said. “We really didn’t take a hit at all.”

Drayton said the decision to use surplus to offset the budget is a “continuing balancing act.” He said using some of the fund balance will always be preferable to shifting the burden to taxpayers.

“The freeholders have a clear directive that raising taxes is absolutely the last resort,” he said. “Using surplus, and reducing the rate for our taxpayers, to help during difficult budget times has been a success. It’s much more important to us to help the taxpayers of Burlington County than to keep an analyst in New York who wants us to raise revenue happy. He doesn’t care about the impact of raising taxes.”

County officials said they are also working to reduce debt, another concern raised in the reports.

The county began 2012 with net debt of about $375 million, about $4.7 million less than in January 2011, according to budget documents. It was expected to retire another $16.6 million of bonded debt this year.

When including the debt, it guarantees the figure jumps to $670 million, according to Moody’s.

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